Failure to win gold leaves Aussie consumers cold

The leading measure of how Australian consumers are feeling has fallen in August, with some analysts blaming Olympic disappointment.

The Westpac - Melbourne Institute Index of Consumer Sentiment fell 2.5 per cent this month to 96.6 - that is further below the 100 point level that indicates when optimists equal pessimists.

Westpac's chief economist Bill Evans says the result is particularly disappointing given a better run of domestic and international economic news over the past few months.

"News that retail spending was boosted in the first half of the year; unemployment remains low; the Government has released $1.9 billion in fiscal compensation over the May–June period; the Reserve Bank had cut the overnight cash rate by 0.75 per cent in May/June; and the president of the European Central Bank has been promising to "do whatever it takes" to save the euro has been unsuccessful in sustaining an upswing in sentiment," he noted in the report.

Never in the history of sport had Australians been so disappointed that some competitors had not won their events.

Citi senior economist Joshua Williamson

Mr Evans says the index has become stuck in a cautiously pessimistic range, with six consecutive months below 100.

He says recent reports that interest rates may have bottomed might have also unnerved some consumers.

"Media reports that the Reserve Bank may have decided against future rate cuts are likely to have unnerved households," he added.

"For example, despite rates staying on hold, the confidence of respondents who hold a mortgage fell by 3.9 per cent."

Citi's senior economist Joshua Williamson says consumer disappointment about the possibility of no further rate cuts was probably a factor in the fall in confidence.

However, he also has a more left-field explanation.

"The other reason why we suspect confidence fell was that the survey period followed a period of intense media commentary on Australia’s inability to meet gold medal expectations at the London Olympics," he observed in a note on the data.

"One academic historian from Melbourne commented that never in the history of sport had Australians been so disappointed that some competitors had not won their events."

Mr Williamson says the Reserve Bank is likely to look past the small dip in confidence and keep rates on hold for an extended period.

However, Bill Evans does not share the view among a rapidly growing minority of economists that official interest rates are unlikely to go below their current level of 3.5 per cent.

"With fiscal policy consolidating and the Australian dollar likely to remain high, adjustments in monetary policy are likely to be the only policy option available if further assistance is required," he said.

"Private sector interest rates are only slightly below average levels. There is adequate scope for further monetary assistance.

"Today's report provides some gentle support for the prospect that lower interest rates may be needed later in the year."